Let ASAP APPRAISALS, INC. help you determine if you can get rid of your PMI
It's typically known that a 20% down payment is the standard when buying a house. The lender's risk is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and natural value changes in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the market price of the property is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. It's beneficial for the lender because they obtain the money, and they get the money if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can prevent paying PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Acute home owners can get off the hook ahead of time. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the initial amount borrowed, so it's important to know how your home has grown in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends predict plunging home values, you should realize that real estate is local.
The difficult thing for almost all home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At ASAP APPRAISALS, INC., we're experts at analyzing value trends in Orem, Utah County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: